IMF and Pakistan

According to a report carried by a section of the press, the International Monetary Fund (IMF) in a draft report stated that active political support is required at the highest level to implement essential reforms in Pakistan and that it would be worthwhile to consider the president for co-signing the letter of intent (LoI) for any future arrangement. All multilaterals, without exception, acknowledge that without active political support any programme loan accompanied by an entire range of politically challenging reform conditions is unlikely to succeed.
At the same time, the IMF traditionally restricts its interactions to the Finance Ministry and the central bank as its focus is to discuss the state of the economy, provide guidance and seek a consensus with the debtor country's economists on identifying reforms considered critical to jump-start the economy. The subsequent agreement then forms the basis of the LoI which is submitted by the government seeking assistance to the IMF board of directors for approval of the assistance package.
The implicit assumption made by the IMF is that the Minister of Finance, a very senior member of the ruling party in most democracies, has sufficient clout within the Cabinet to successfully persuade his colleagues into the need to accept the conditions dictated by the Fund. In the case of Pakistan, regarded as a perennial borrower from the Fund, there is overwhelming evidence that suggests that political commitment to reforms proposed by multilaterals is lacking and the signatories to LoIs, namely the Finance Minister and the State Bank Governor, have traditionally not had the clout necessary to convince their colleagues to support politically challenging reforms. Pakistani finance ministers by and large have neither been senior members of a political party or indeed regarded as political heavyweights by our military dictators. This country has seen many a bureaucrat promoted to the post of finance minister (Ghulam Ishaq Khan) or an international bureaucrat who has spent his/her working life as staff of a multilateral (Hafeez Sheikh). Conspiracy theorists spend an inordinate amount of time arguing which powerful institution recommended which finance minister and given the trichotomy of powers their choice is one of three. It is therefore little wonder that reports indicate that the IMF team met with the Chief of Army Staff however there is no confirmation from ISPR on this yet.
Be that as it may, two facts are fairly evident in today's Pakistan. First and foremost the need for foreign assistance or going on another IMF bailout package is overwhelming given the state of the economy. The country is struggling with a rising budget deficit, expected to be over 8 percent for last fiscal year (higher than the 7.4 percent this government inherited in 2008 which necessitated going on the 7.4 billion dollar Stand-By Arrangement with the Fund), a rising trade deficit, a deteriorating balance of payment position, declining productivity of large-scale manufacturing sector due to the energy crisis and a farm sector heavily reliant on weather for greater productivity. In short, there is a need for an IMF programme and it is only a matter of time before the government would seek new programme lending from the Fund.
Second, it is no secret that the centre of power is the President and not the Prime Minister irrespective of what our constitution states. Therefore, in this context it is not surprising that some wise person advised the IMF staff to meet with the President and seek his signature to an LoI. But perhaps two pertinent mitigating factors need to be considered. The President has succeeded in sustaining a coalition against all odds but even he has had difficulties in convincing Sindh government, where the PPP has an overwhelming majority, not to exercise its constitutional right to collect the sales tax on services and allow the Federal Board of Revenue to do so. And equally importantly, the PPP does not have a simple majority in parliament and therefore is not in a position to enforce reforms that maybe opposed by other parties both within and outside parliament for political reasons.
Ideally, it is the consensus approach that would take all stakeholders on board - both within and outside parliament. As matters stand today even the coalition partners lament that they are not taken into confidence with respect to the budget document and, what has assumed a political dimension as the general elections near, or in terms of policies to resolve the severe energy crisis. Additionally, documents reveal that there is concern amongst cabinet members about the credibility of data presented by to them, a mistrust that is permeating the people of this country who witness the erosion of the value of each rupee they painstakingly earn almost daily with the Finance Ministry claiming that inflation is coming down. Inaccurate data also compromises the credibility of data presented in the budget. It is therefore necessary to delink the statistical gathering branch from the Finance Ministry and make it autonomous to ensure data integrity.